FNCE3000 Corporate Finance - Assignment Help

6

Referencing: 

•              Use referencing sparingly. More reference means less critical assessment. You are not awarded marks for putting forth opinions of others.

•              AGLC (Footnote) referencing is required. 

•              Referencing must be consistent (5% penalty). 

•              Do not reference material from textbooks and lecture slides. 

•              Do not include definitions or theory. 

•              If the information is from the annual report, do not reference; instead include the page number of the annual report from which the information has been taken from. 

•              Do not quote from the annual report, journal articles, textbook and lecture slide or provide formulas and definitions to equations; just show your workings. 

•              Appendices without intext page number reference will not be looked at.

•              Do not reference from stockbroking or investment companies/website/articles; including but not limited to Simply Wall Street, Intelligent investor, Investsmart, Motley Fool, investing.com, Investopedia, etc.

1.1

Summary of the business

•      Short description of the main operations of the business and the services or products that they offer

•      Describe what is the business’ main profit source

•      If they have multiple revenue sources, investigate, and summarise them

•      Summarise in table or diagrams

•      DO NOT reproduce material from website or annual reports

1.2

Chairman/Director’s message

Assessing the tone of the message, determine the potential target audience 

• Compare chairman’s message with 3 other companies (not in the same industry or sector)

1.3

Profile of an investor of the company

Describe who would be a typical investor of your chosen company in terms of 

•      income vs capital growth

•      long vs short term

•      informed vs uninformed

In your assessment, make comparisons to 3 companies (in other sectors) to substantiate your reasoning. For example, if you think the investor is looking for dividend income, the company must be paying substantially more than other companies.

Use graphs and charts to illustrate.

*Note: as we have 3 sections here, income v cap growth, we can not have both at the same time we just have one either my company is income producing stock or a growth stock. For knowing this we shoud have 4 heading in this question which is as below:

1)Fixed income: we should look at whats the percentage of the revenue fixed income. We should talk about fixed income, income which is fixed not variable,  and remember that income stock is very different from capital Growth.

 2)Stability of dividend: we should look at percentage, never use dollars $, how much they pay dividend or dividend yield.

3) Maturity: what’s their maturity, if they exist for long time chances to have lots of fixed income is high.

4) Average AORD dividend yield: if you google the average AORD, u will get something like 4.5%, anything above this number is income, anything belove this number would be growth.

Short term v long term

State how can I know my company has short or long term investor? We should have 4 heading in this context, which is as below

1)      Maturity/age: for ex company is about 100 years

2)      Take a look at the volume: volume of trades gives u an idea of weather buying or selling, use graph please

3)      Trends/Fads:

4)      Possible triggers (Regulation, innovation….)

Inform v uninform: profile of an investors of a company, we need to know who they are. We are looking for non-marginals, DAPR is non marginal.

DARP: dividend investments plans, as a shareholder when you receive dividend-> you automatically buy shares.

Nomanee: is just when you buy shares, u can either buy chass or iss sponser, if its issue spencer your names go on the list if its chasse they buy share through broker.  

1.4

Identify non-marginal investors

To assess a company, we need to consider the future cash flow of the business; its sustainability and profitability. This is an important element of the analysis work. However, future cash flows must be discounted using the appropriate rate. 

CAPM is often used as an approximation for the rate. However, when there is a significantly high percentage of non-marginal investors, other methods must be

employed. In this assignment, we are only going to compare CAPM with DGM. 

Your investigation into the type of investors of your company will assist in determining whether CAPM should be relied upon. 

Focus your attention on identifying non-marginal investors; founders, insiders, directors, related companies like suppliers. Provide evidence of your research. Individual names, family trusts, private companies (mostly), share plans and DRPs are all non-marginals. When there is a high percentage of non-marginal investors, other calculation methods (such as DGM) must be considered on top of CAPM. No marks are awarded for identifying marginal investors. 

Nominees, custodians, banks and investment companies are all marginal investors; ignore them. 

Make sure you create a table listing the percentage of marginal vs non-marginal and then discuss.

State clearly your assumptions of investors outside the top 20. 

2.1

Review and Evidence of listed risks

In this section, you need to review the risks listed in the annual report. Avoid making up your own risks. We are after external risks. Investment decisions, financing decisions, credit, health and safety, compliance and human resource management are all internal risks; ignore them.

Competition is not a risk, it is the reason the company is in business. 

Climate change is not a risk, unless the company’s product and service are directly and significantly influenced by the climate change.

Do not discuss Covid as a risk as there other factors that must be considered, such as government assistance and support, reduction of competitors, difference in state border restrictions, etc.

There are not risk:

·         Investment decision

·         Financial decision

·         Credit/health and safty

·         Compliance and human resourses management

·         Cyber security/ climate change

·         Covid an compitation

The risk u should mention is:

·         Government regulation \

·         FX

·         Interest rate

·         Political

·         Legislation

So, discuss something that effect on cash flow.

Write your Expectation

Second part: market reaction

Part 3. Percievd and observed

Part 4. Theorical and calculation  

Do not google the risk, start with CAPEX and ask yourself whats these CAPEX and whats the company invetsing in?

Identifying the risk is only part of the story. You have to now show evidence of the risk and explain why your company is more susceptible to that risk than other companies. The evidence that you provide are for the risks identified in the previous section. You must have evidence and explanation for each of the risks identified. No marks are awarded for risks that are identified without clearly showing evidence that they have impacted the company.

This can be done in a few ways; relevant newspaper articles, correlation with identified variables, trend analysis, and comparison with competitors, etc. 

Share price decrease can be visual way to show the impact of the risk in the past.  

 Discuss at least 3 external risks pertaining to the normal running of the business. 

Do not address the steps taken by the company to address or reduce the risks. 

Please take time to investigate and document your findings.

2.2

Review of shareholder vs market returns 

The total return to the shareholder is the capital growth plus the dividend received.

Use the ending share price for each of the reporting period as stated in the annual report. If they are not presented there, only then you will source them from Morningstar DatAnalysis (via Curtin library). Use closing unadjusted prices. Calculate the one-year change in share price of the stock. 

Use the dividend paid for the reporting period as stated in the annual report. If the share is franked, you will have to gross it up to account for franking credits and include special dividends. Look at the payment date of the dividends. As dividends stated on the annual report are often the declaration date, you may have to refer to the previous year’s annual report.

Use All Ordinaries (AORD) as your index. Follow the same period as your annual report. 

Calculating the total returns for the shareholder must be done paying particular attention to the following:

•              Time frames must match your annual report and index returns

•              You have to include both the interim and final dividend and any special dividends paid for the period. 

•              Look at payment date

•              You have to gross the dividends up to include the franking credits. Franking credits are only applicable for this section. Do not include them in your cost of capital section

Use the following formulas:

 Note: in this equation, Dividend = total dividend paid for the period. If the franking proportion is different for interim, final or special dividend, you will need to do it separately and then add them up to get grossed up dividend. Video of an example will be available in your iLecture tab. 

2.3

Review of capital projects

Finally, you have to review the capital projects that the company is

undertaking. Detail and present in a table format the:  

•    Description

•    Amount and

•    Duration of the projects. 

Risk return discussions must always be done in relation to future capital projects. How are the risks identified affect the profitability of the future projects? 

Companies can also be rolling out projects previously announced. You will need to look back at previous annual reports (include year and page number). Do not reference commentaries, stock reports or news articles. 

If the shareholders deemed that the risk are too high, they would demand a higher return, and this will often result in the lower share price upon the project announcement.

Capital projects are not cost savings, such as staff cuts, efficiencies, reduced cost of inputs, etc. You should look for announcements of investments into projects like acquiring a business, machinery, new premises, etc. 

Formulate a concluding paragraph to link your understanding of the risk return trade-off, discussing in particular all the risks that you have identified previously.